APPD Market Report Article

Guangzhou

December 1, 2021

1.9%

RMB 179.6

Rents
Rising

Occupier demand from various sectors persists in Guangzhou

  • Guangzhou’s economy extended its recovery momentum in the third quarter of 2021. Leasing demand maintained its relatively strong level with net absorption rising by 27% q-o-q to around 212,200 sqm, even after a strong performance in the previous quarter. Moreover, market sentiment remained positive with active enquiries.
  • The leasing demand was supported by various sectors, including Internet services and professional service sectors. Mature submarkets such as ZJNT, Tianhe North and Yuexiu are preferred by professional services as well as financial companies due to the agglomeration of similar firms in these areas, whereas emerging submarkets such as Pazhou is more popular among Internet service firms.

Five Grade A office buildings enter the market in 3Q21

  • Five Grade A office buildings, The Grand City, Infinitus Plaza, TCL Plaza, GMC Plaza and Dongsheng Plaza were completed in the quarter, with an office GFA of approximately 360,000 sqm in total. The total stock of Grade A office buildings in Guangzhou thus rose to around 7.2 million sqm by the end of 3Q21.
  • Overall market vacancy rate increased moderately to 12.1% in 3Q21 as quarterly office completion was significant. The vacancy rates in most submarkets remained steady, while vacancy rate of Pazhou climbed sharply from 7.5% to 12.7% due to three out of five new buildings located in that district.

New completions impose limited impact on market rent

  • Consistent leasing demand partially offset the negative impacts of new supply on overall rent, as Guangzhou’s market rent rose slightly by 0.3% q-o-q in the quarter. Since the vacancy rate in Pazhou’s existing buildings was relatively low, new completions did not significantly affect Pazhou’s overall rent, and most landlords kept their rents relatively stable.
  • No en-bloc transactions took place in 3Q21, but demand from end-users remained active as they expressed interest in the Grade A office buildings in Pazhou, leading to a slight growth in Pazhou’s capital value. Meanwhile, as more investable supply is expected to enter the market, institutional investors took a wait-and-see approach in the quarter, hoping to find the most appropriate target.

Outlook: Leasing demand is likely to sustain

  • The overall economy continued to thrive as the impact of COVID-19 eased further, which is expected to support on-going leasing demand in the upcoming quarters. The stable economy could in turn encourage state-owned enterprises, financial institutions including banks to continue expanding.
  • Around 0.8 million sqm of new supply is expected to enter the market over the next 12 months, most of which will be located in Pazhou. Nonetheless, due to strong leasing demand in that district, and low vacancy rates of the existing buildings, the impact of new supply on overall rent is anticipated to be relatively small.

Note: Guangzhou Office refers to Guangzhou's overall Grade A office market.

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